Saturday, February 12, 2011

My two favorite books of all time are Daemon and Freedom written by Daniel Suarez. These books portray a future society that is controlled by a computer daemon or background process that essentially takes over the entire world. Its goal is not malicious, at least from my prospective, and the desired outcome is a decentralized, robust, sustainable, high-tech society. There is a large amount of technology described in the book that is just now becoming available to consumers. My personal favorite is a wearable augmented reality heads up display, but that is another topic.

In the books, the Darknet is the decentralized network that allows for communication and is supported by an underground economy. While it is evident that aspects of this theoretical system are integrated into our own lives, Facebook is everywhere, these systems are still centralized. One of the core components of the Darknet technology was there is no single point of failure. A extended blackout on the west cost or a severe fire in Facebooks data center would take the service offline for an extended period of time. I believe we need to transition away from centralized control and move to more distributed, robust systems, but this is also a topic for another time.

One part of this imaginary world that is central in the political and corporate opinions expressed in the books is the Darknet credits or currency. This alternative currency is favored highly over the American dollar after hyper inflation takes hold and drives the prices of good steadily upward. A system similar to the Darknet credit is already available in real life, it is called a Bitcoin. Unlike standard cash, a Bitcoin is a distributed peer-to-peer network based economy that is cryptographically secure. For the sake of my argument here, it is safe to assume that there is a limited supply of Bitcoins that are currently being created, but there is an eventual maximum, so the supply is limited. The transactions in the system are secure and can not simply be rolled back by a bank. The movement of funds is secure so you can not simply copy and paste digital dollars to generate more money for yourself. It is a secure, safe, and anonymous way to move digital money.

The implications of such a system strike at the foundational structure of our society and the world economy. Right now it is possible to exchange Bitcoins for US dollars and the exchange rate hovers around a 1-to-1 exchange. However, if Bitcoins begin to gain wide spread adoption it is possible that this conversion rate will increase over time. An economy like this can exist as long as people are willing to use the currency in exchange for goods and services. The gold standard was based on a scarce finite supply. Like gold, a Bitcoin is a scarce resource that has a well defined finite supply so its value can be calculated and anticipated. Unlike a physical object, a Bitcoin can be divided as small as 0.00000001 and a total of 21,000,000 Bitcoins will be in circulation when the system is finished generating Bitcoins making the overall supply sufficient for a global economy.

The EFF now accepts donations in the form of Bitcoins. While this is technically a trivial process, it is significant in so far as Bitcoin transactions are essentially anonymous. With the source of the money not able to be verified, new set of problems and concerns arise. However, Bitcoins eliminate some major problems we have with our current economy. The biggest problem is obviously the debt. The United States faces crushing debt and if this situation is not resolved within the short term, it will destabilize the economy. Would the total collapse of the economy be the downfall of society as we know it? I doubt it will come to that. While I'm not trying to predict the coming Apocalypse, in the case of economic failure, Bitcoins are an attractive alternative to the US dollar. While my employer is not likely going to pay me with Bitcoins and I can not yet purchase a cheeseburger with a Bitcoin, electronic currency has some major benefits over the cash and credit cards we have grown accustomed to using.

The big picture here is that the world is changing very rapidly and electronic currencies are unavoidable. A peer-to-peer system is much more robust than a centralized system, but governments and corporations have just concern to be scared if this starts to gain wide spread adoption. The Internet has made the world flat and a currency that is not tied to a nation state or outdated and defective financial policies is very attractive. Maybe one day I will be able to purchase a cheeseburger off of the 0.99 Bitcoin menu, but in my mind I will be making that purchase with a Darknet credit.

5 comments:

Back when you posted this, I didn't read it too closely because I thought this was a post about those books I haven't read yet.

But when you visited last week and you told me about the Bitcoins I realized that's what this blog was about. I just downloaded the client and am figuring everything out.

I like the whole idea, but the limited cap sounds like it could be a big problem for some reason. I'm guessing people with far greater skills in economics than I have came up with the system and obviously there's a good reason for that constraint, but it's just my thoughts.

Lets see if I can live off of the pennies a year I can generate on this, heh.

My CPU runs around 5000 khash/s and my GPU runs at 2000 khash/s. I'm not using my GPU because everything stops working when it gets maxed out.You definitely are running way faster than me. You'll have to tell me how much you make after running for a while.